European banks will be wary about conducting new business in Iran even after many international sanctions are lifted, European executives and officials have warned — potentially limiting the economic benefits Iran will receive from its landmark nuclear deal with world powers.
Still stinging from fines levied by US regulators for breaching the old sanctions regime, many European financial institutions are worried about falling foul of the US sanctions laws that will remain in place.The reluctance of European banks to conduct Iran-related business could complicate implementation of the nuclear deal, creating a potential source of friction with Iran and also between Europe and the US.“There is going to be this large grey area that will scare European banks,” says a senior European official. “It is frustrating because it was European companies, not Americans, who bore the brunt of the sanctions.”Large banks would “stay away for some time”, said a senior executive at one of Europe’s biggest lenders. “It will be big confusion and big banks will abstain, awaiting clarity — which may take years, or at least until a few months after the [US presidential] election.”Many of the international sanctions on Iran were lifted on Saturday after it dismantled large sections of its nuclear programme, fulfilling its commitments under the nuclear deal signed last July.Multinational companies across a range of sectors are eager to return to the Iranian market, including some of the world’s biggest oil companies as well as services and retail businesses.However, although the US is lifting the sanctions that in effect barred international banks from Iran-related transactions, it is maintaining those that penalise anyone doing business with companies connected to Iran’s Revolutionary Guard (IRGC), which has extensive and often opaque economic interests.The remaining sanctions will also prohibit most transactions conducted in US dollars.
International companies and banks are eager to find out what sort of steps they need to take to check for Revolutionary Guard links. The fact-sheet released at the weekend by the US Treasury says only that companies “conduct due diligence sufficient to ensure that it is not knowingly engaging in transactions” with the IRGC.
“Just how much work will the Europeans need to do to feel safe that they are not exposing themselves to the IRGC?” asked a former senior US official who was closely involved in Iran sanctions policy. “That is the core challenge for business.”The former official added: “The financial sector is going to come under a lot of pressure from business to facilitate their return to Iran, but the banks will want to go very slow.”Standard Chartered is one of the few foreign lenders with a licence to operate in Iran, but this is a disused legacy of its historical activities in the country. After paying two fines totalling almost $1bn for breaching sanctions in the country, it has no plans to rush back in.HSBC has paid $1.9bn in US fines and a record was set with last year’s $8.9bn fine for France’s BNP Paribas. Other banks hit by smaller penalties for US sanctions abuses include Deutsche Bank, ING and Crédit Agricole.
“The many banks fined by the US for breaching Iranian sanctions — and it is a seriously long list — means that many of them have committed to not doing any transactions with Iranian passport holders or companies,” said Rudi Lang, UK head of banking at the accountants Mazars. This gives everyone a headache. It could be a deal-breaker,” he said. “The risk of getting it wrong clearly outweighs the opportunity at the moment. People will be reading the small print very carefully.”
Another senior European official said companies and banks were worried that even if they received assurances from the US Treasury Department about a transaction in Iran, prosecutors and other financial regulators could adopt a much stricter interpretation of the rules. “How can you be sure that a prosecutor in New York will have the same view as Treasury?” he asks.
He said European businesses were concerned about the threats by most US Republican presidential candidates to tear up the nuclear deal and by the political climate in the US which could create a “stigma” if they were to invest in Iran even if no laws were broken.While Europe debates the risks of returning to Iran, others could take up the slack. Chinese and Indian banks have the strongest presence of any foreign lenders in Iran, with groups such as China Development Bank and State Bank of India gaining an early head start over western rivals looking to move into the country.Russia’s Renaissance Capital is one of the few foreign banks actively doing business in Iran. In addition, a handful of specialist investment firms have sprung up in Tehran, often set up by Iranians who used to work for western institutions, such as Turquoise Partners, Griffon Capital and Kardan. One western official said that Europe’s banks would eventually play a significant role, arguing that “it may make it difficult in the beginning but it does not mean nothing will happen”.“If lifting sanctions does not produce the results the Iranians are expecting,” the official added, the implementation of the “entire nuclear deal will be in question.”
Source: Financial Times
